Demographics of the 401(k)

A few days ago I read an article over at MSNBC about McDonald’s 401(k) plan. Apparently, participants contributing 5% of salary are matched at 11% of salary. That’s pretty damn good. But something struck me so hard I actually e-mailed it to my boss:

Skepticism about investing runs especially high among African Americans, who make up 15 percent of the company's manager pool. Research shows that blacks, in the aggregate, are reluctant to save. According to a 2008 study by Ariel Investments and Charles Schwab, blacks save an average of $169 a month for retirement, while comparable whites (in terms of household income) contribute about $249 a month. Race and ethnicity trump gender — and even salary — in the factors that predict whether a person will save for retirement.

Preparing for the future Why don't blacks save more? The reasons are complex, but the underlying theme is cultural. "African Americans are distrustful of the financial system because it has excluded them for generations," says Andrés Tapia, chief diversity officer at Hewitt Associates, the benefits-consulting giant. Hewitt's research shows that African Americans consistently put home ownership and college ahead of retirement goals. Owning a home and educating children become a huge priority, explains Tapia, "if you are the first person in your family to do it."

I will argue with some of the reasoning here. Distrust of the system I understand. But owning a home and educating children are put ahead of retirement savings in plenty of families – particularly young ones – regardless of race.

The statistics, though. Wow. $80 per month difference for people of comparable incomes. How do we get past that?

You can read the rest of the article here.